NEW YORK (
) -- A blog-aggregation site asked me about my expectations for the stock market in 2010. An ongoing theme for the past five years in my writing and in the portfolios I manage has been that investors ought to slowly increase foreign exposure.
That has been crucial over the course of the past decade and, as things have perhaps gotten worse in the U.S., the notion of greater foreign exposure could be even more important in the next decade.
One reader said: "Investing in big multinationals gives me all the exposure I need for global markets." He went on to cite
Proctor & Gamble
as examples. This argument comes up often and points out a vital issue: Big multinationals benefit from business overseas but rarely serve as proxies for investing overseas.
Exxon Mobil hasn't provided much in the way of performance leadership or correlation to foreign oil companies. Exxon Mobil's stock has fallen 14% this year, while the
WisdomTree International Energy Fund
is up 29% and Norwegian oil company
is up 50%. Over five years, Exxon Mobil has risen a little less than 40%, while Statoil has increased 60%. From Statoil's NYSE debut in October 2001 to today, the stock has climbed about 300%, compared with Exxon Mobil's 80%.
According its 2009 annual report, Proctor & Gamble generates 32% of its sales from developing markets. There are no emerging market sector exchange traded funds for the consumer staples sector to provide a useful comparison. But there are ETFs for Brazil and China whose larger holdings can be compared to Proctor & Gamble. This year,
China Yurun Food Group
has advanced 120%,
Want Want China Holdings
has risen 60%, and Proctor & Gamble is little changed. Those two Chinese stocks are the two largest staples holdings in the new
GlobalX China Consumer Fund
. The two largest staples stocks in the
iShares MSCI Brazil Fund
Companhia de Bebidas das Americas
, which is up 120%, and
, up 35%.
It's best to compare Boeing with the
WisdomTree International Industrial Sector Fund
. Here the difference may not be as stark, but still noteworthy, as the International Industrial Sector Fund is down 30% over two years whereas Boeing is down 40% -- the correlation is tighter. During the past year, the fund has outperformed, rising 48% versus 36% for Boeing.
A multinational company usually correlates closer to the home market. A great example is
. We own this name for clients because it sells a lot of earth-moving equipment to China and has clearly benefited from this business. But a chart comparing the stock to the Shanghai market would convince you that the two actually have a negative correlation.
At the time of publication, CAT, DKA and STO were client holdings.
Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;
to send him an email.